Richemont's Focus on Saving Cash Pile Damps Hermes Speculation

By Tom Mulier -
Nov 12, 2010

Cie. Financiere Richemont SA said
the world’s largest jewelry maker needs its 1.88 billion-euro
($2.6 billion) cash pile to fund growth of its own brands,
damping speculation the owner of Cartier jewelry may buy shares
in Hermes International SCA.

“We want to grow organically and we feel we need the cash
position to do that,” Richemont Chief Financial Officer Gary
Saage said today. “Cash is our fortress; it will finance our
investment programs. It allows us to increase dividends in good
times and bad, and it allows us to have a competitive advantage
to seize opportunities.”

Richemont is one of the few companies that could help
Hermes fend off LVMH Moet Hennessy Louis Vuitton SA, which last
month said it owned a 17.1 percent stake in the maker of silk
scarves and Kelly bags, according to Luca Solca, an analyst at
Sanford C. Bernstein. Saage declined to comment on Hermes today,
though his comments on strategy suggest organic growth will be
the focus, Solca said.

Speculation of a link between the luxury-goods companies
arose when Hermes Chief Executive Officer Patrick Thomas said
Nov. 9 the company has a “good relationship” with Richemont
and they are “the sort of people who would work in a friendly
way.” He also said the family shareholders, who together own
73 percent of the Birkin bag maker, are unified and want to keep
the company independent.

‘Lots of Friends’

“Richemont has lots of friends, but it doesn’t need to get
into bed with all of them,” said Jon Cox, an analyst at Kepler
Capital Markets. “What they’re signalling is ‘we have strong
brands, and organic growth is what we’re going to be focusing
on.’” Richemont had more than twice as much cash at the end of
the quarter compared to the year-earlier period.

Thomas declined to specify what options Hermes had to ward
off LVMH’s advances, except to say that there were several. The
founding family doesn’t need a so-called poison pill defense
because of its combined stake, he also said.

Because LVMH has said it doesn’t intend to file a bid for
Hermes, it can’t buy more shares in the 173-year-old company for
six months, according to France’s stock market rules. An
investigation by the nation’s financial regulator into how LVMH
built up its stake may take a year, AMF head Jean-Pierre Jouyet
has said.

LVMH has acted within the letter and the spirit of
financial regulations, Vice President Pierre Gode told a French
newspaper this week. LVMH began buying swap contracts
underpinned by Hermes stock in early 2008 as a hedge against the
financial crisis, Gode also said in the Les Echos interview on
Nov. 10.

Solca said Richemont isn’t closed to future possibilities.
That Saage “replied with a ‘no comment’ to the direct question
leaves the door open,” the analyst said.